DOW CHALLENGES 14000 FOR FIRST TIME SINCE 2007 -- GLD FORMS RISING WEDGE WITHIN DOWNTREND -- WEEKLY MACD TURNS UP FOR THE COMMODITY INDEX FUND -- BASE METALS BOUNCE AS COPPER BREAKS RESISTANCE -- JOB GROWTH CONTINUES TO TREND POSITIVE

DOW CHALLENGES 14000 FOR FIRST TIME SINCE 2007... Link for todays video. The Dow surged around 1% in early trading on Friday and closed in on its next big round number (14000). There is usually nothing special about 14000, but this number is special because the Dow failed at 14000 in 2007. The financial crisis and swoon financial stocks helped push the senior average below 7000 in early 2009. With todays challenge, the Dow has made it a six year round trip. Chart 1 shows the Dow falling 50% and then requiring a 100% advance to make up for this decline. Long-term, the trend is up as long as the Dow holds its rising 24-month EMA and the Commodity Channel Index (CCI) remains in positive territory. As the blue lines show, this combination has been pretty good at defining the long-term trend changes over the last 10 years.

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Chart 1

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Chart 2

Perhaps the Dow is looking forward to the NFC winning the super bowl. More likely, Januarys mutual fund in-flows were being put to work on the first day of February and this buying could extend to Monday. In any case, the trend on chart 2 is also up, but the Dow remains overbought after two big advances (mid November to mid December and late December to early February). Todays move gives us a short-term support level to watch for signs of a pullback or correction. A move below Thursdays low would break support and argue for a corrective period that could see the Dow pullback to broken resistance in the 13600 area.

GLD FORMS RISING WEDGE WITHIN DOWNTREND... Gold is getting an erratic bounce early Friday, but remains short of a breakout that would reverse the four month slide. Todays bounce could be because of the breakdown in the Dollar, which John Murphy pointed out in Thursdays market message. It appears, however, that gold needs more than just Dollar weakness to get its mojo back. Chart 3 Spot Gold ($GOLD) peaking at 1800 in early October and falling to the 1650 area in mid December. Gold has since consolidated in the 1600-1700 area since December 19th. A consolidation within a downtrend is normally bearish and a break below the January low would target a move to the 1580-1600 area.

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Chart 3

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Chart 4

Chart 4 shows the Gold SPDR (GLD) with daily candlesticks for a little more granularity. GLD hit resistance in the 164-165 as a rising wedge took shape the last seven weeks. A break below 160 would signal a continuation of the bigger downtrend and target a move towards the lower trend line of the falling channel. A move above 165 is needed to break channel resistance and fully reverse this downtrend.

WEEKLY MACD TURNS UP FOR THE COMMODITY INDEX FUND ... Even though gold remains short of a breakout, strength in the stock market and weakness in the Dollar is providing a boost to other commodities. Chart 5 shows the Commodity Index Fund (DBC) firming in the 27 area since late October and breaking above resistance with a surge this week. This move reinforces support at 27 and signals a continuation of the 2012 surge, which would target a move towards the 2011 high around 32. The indicator window shows weekly MACD holding around the zero line and turning up the last few weeks. Note that DBC is heavily weighted toward the energy complex with over 50% based on crude.

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Chart 5

BASE METALS BOUNCE AS COPPER BREAKS TRIANGLE RESISTANCE... Chart 6 shows the Base Metals ETF (DBB) surging above 19.50 this week and challenging the trend line extending down from the September high. Up until this week, base metals were lagging the stock market. This weeks surge reinforces support at 18.50 and a breakout would open the door to the 2012 highs in the 21.50 area. Chart 7 shows the Copper ETF (JJC) edging above the triangle trend line with a surge above 47 this week.

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Chart 6

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Chart 7

JOB GROWTH CONTINUES TO TREND POSITIVE... With the Fed focused on the unemployment rate for its quantitative easing program, the market will likely focus on weekly initial jobless claims and monthly non-farm payrolls for clues on future Fed action. It is interesting that the Fed specifically targeted the unemployment rate because this is the most lagging of the three indicators. Initial jobless claims is one of the ten leading economic indicators. Non-farm payrolls is considered a coincident indicator. The unemployment rate, however, is the most steady of the three and less subject to revisions. Regardless, initial claims and non-farm payrolls are moving in the right direction. Chart 8 shows the 4-week average for initial jobless claims moving to a multi-year low this month. There was a spike in this weeks number, but most analyst use a four week average to smooth the fluctuations. The job market is doing ok as long as this number trends lower. Chart 9 shows the monthly change in total nonfarm payrolls. We have not seen a spike above 300,000 since May 2010, but job growth has been consistently above 150,000. As far as the stock market is concerned, the long-term trouble starts when this number turned negative for a few months.

Chart 8

Chart 9

STOCKCHARTS.COM PRO... Note that these charts were created using a PRO account at Stockcharts.com. PRO accounts allow users to upload data and create up to 10 custom securities. Unfortunately, this chart is a static image and cannot be shared. Despite this drawback, I think the chart and analysis add value to the market message. This data is available for free at the St Louis Fed website(https://research.stlouisfed.org/fred2/).

ISM INDEX SURGES MOST IN OVER 2 YEARS... Chart 10 shows the ISM Manufacturing Index dipping below 50 a few times in the second half of 2012 and then surging back above 53 for January. Anything above 50 indicates that the economy is growing. Also note that this is the biggest percentage increase since early 2010. The bottom indicator shows the 1-month rate-of-change surging to 5.78%. Chart 11 shows the ISM Manufacturing New Orders Index rebounding with a move above 53 as well.

Chart 10

Chart 11